Ghana has introduced an annual carbon levy on vehicles and industrial emissions. It's only the third African country to introduce an explicit carbon tax, after South Africa and Mauritius. The tax is intended to address harm associated with vehicle emissions. But it has prompted a pushback from various citizens, civic and consumer groups.
The Conversation Africa's Godfred Akoto Boafo spoke to Theophilus Acheampong, an energy economist who has consulted for Ghana's finance ministry on environmental fiscal reform, about the impact and implementation of this kind of levy.
Why is the government taxing emissions?
The proposed vehicle emissions tax under the Emissions Levy Act, 2023 is one of several environmental fiscal reform measures being introduced by the government. I am among several consultants who have worked on these proposed reforms since 2010.
Environmental tax reform aims to shift the burden of taxation to environmentally damaging activities, such as pollution.
Reforms like this can help raise domestic revenue, protect the environment by meeting country climate targets under the Paris Agreement and the Sustainable Development Goals, and reduce poverty. These benefits have been confirmed in many studies but with mixed results.
Ghana's government believes the vehicle emissions tax is a more cost-effective and equitable way to make sure the polluter pays, prevent harm and protect the public.
Energy sector emissions made up 61% of Ghana's total emissions in 2019. The transport sector accounted for 48% of this (about 29% of total emissions).
Lower respiratory infections, which are linked to air pollution, are among the top five causes of death in the country. Some 28,000 Ghanaians died prematurely from air pollution in 2020. Air pollution-related deaths cost Ghana 0.95% of gross domestic product, according to a 2021 Lancet study.
What has been done so far to reduce air pollution?
In 2021, the government introduced a sanitation and pollution levy on petrol and diesel under the Energy Sector Levies Act to raise revenue to improve air quality, among other goals. The levy accrued GHS452 million (US$55 million) in 2022.
Read more: Ghana wants fewer polluting old cars on the road. But it's going about it the wrong way
In 2018, the government also introduced a luxury vehicle tax on vehicles with engine capacities of three litres or more, except for commercial vehicles. However, following a public outcry, the government suspended the tax in July 2019. There were subsequent calls for it to be reintroduced.
These measures weren't well designed from a tax policy point of view as they were not tied to actual vehicular emissions. Hence the need for an vehicle emissions tax.
How should an emissions tax work and how does the new tax work?
Ghana's proposed emissions tax is based on internal combustion engine capacities. Charges range from GHS75 (US$6) for motorcycles and tricycles to GHS150 (US$12) for motor vehicles, buses and coaches up to 3 litre engine. A higher threshold of GHS300 (US$24) applies for motor vehicles, buses and coaches above 3 litre engine capacity, and cargo trucks and articulated trucks.
Ideally, the tax should be based on the actual carbon dioxide and other pollutant emissions from a vehicle, measured in grams of carbon dioxide per kilometre. A threshold of tailpipe CO₂ is set. Each car owner would pay an annual tax for the amount of CO₂ their car emits above that threshold.
The tailpipe emissions test would be done during the annual roadworthiness check by Ghana's Driver Vehicle and Licensing Authority. It would also collect the amounts and then remit them to the Treasury.
There is scope in Ghana's case to tie it to actual tailpipe emissions and also revise the upper end of the tax as it is prohibitive. This would make the tax more equitable and better reflect the "polluter pays" principle.
What are the objections to the tax and can they be accommodated?
The main objection is that it amounts to double taxation. Critics point to the existing pollution levy. There is also no clear plan for what the tax will be used for after it is collected.
Several critics, especially in the manufacturing and transport sector, say there are already too many taxes. A new one adds to the cost of operating a business. This cost will be passed on to consumers in an already struggling economy.
Some have urged the government to develop environmentally friendly power sources like nuclear and solar energy.
But the government is under pressure to raise domestic revenue as part of its International Monetary Fund conditionalities. It is therefore difficult to predict whether it will accommodate the concerns that have been raised.
How does Ghana's tax compare with others in Africa?
Ghana, Zambia, South Africa and Namibia have various environmental taxes covering energy, transport, air pollution and waste.
For example South Africa introduced a carbon emissions tax on vehicles in 2010. This was updated in 2019 and 2022. It was graded according to engine litre capacity and the rate is adjusted for inflation every year. A 2018 study indicated that South Africa's CO₂ emissions tax had failed to influence which new cars consumers were buying. This is understandable given low income levels and that 35% of households used public transport, according to the 2020 National Household Travel Survey.
Ghana's proposed emissions tax for vehicles up to 3 litre engine capacity is not unreasonable when benchmarked to South Africa's.
However, the tax for engines above 3 litres is steep. It targets the main means of transport for many citizens. The 2012 Ghana National Transport Household Survey showed that 90% of commuters used shared public transport (known locally as "tro-tro"); this figure may have declined in recent times.
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Can the tax be implemented and will it meet its objectives?
Ghana is already implementing several environment tax reforms across different sectors, with varying degrees of success. There is the potential to harmonise these instruments to improve environmental outcomes and behavioural incentives.
The existing sanitation and pollution levy must first be scrapped and replaced with the vehicle emissions tax. This should be based on actual carbon dioxide, nitric oxide and other tailpipe emissions to maximise efficiency. The tax bands should conform to emission standards set by the Ghana Standards Authority and the vehicle licensing authority.
Having both the sanitation and pollution levy and vehicle emissions tax operating at the same time amounts to double taxation.
Ghana must also agree to earmark and allocate an agreed proportion of the proceeds to address environmental issues.
What is the tax collection picture in Ghana?
Ghana tax collection is currently around 14% of GDP. Its aim is to get to 18% by 2028, comparable with its peers such as Senegal, Namibia, Togo and Rwanda. Other revenue generation avenues have been met with stiff resistance. A recent value added tax on electricity has just been suspended.
In 2024, Ghana plans to improve revenue performance through extending the electronic VAT system to cover 600 large taxpayers and more than 2,000 small and medium-sized taxpayers, as well as taxing industrial and vehicle emissions, among others.
Theophilus Acheampong, Associate Lecturer, University of Aberdeen
